Market Direction Overbought But Could Surprise Investors

Market Direction remained strong today despite the overall market being under pressure. Despite the Dallas Fed Chair’s comments regarding no need for further stimulus and news out of Europe that exports declined in Germany and overall Europe economies are continuing to decline, investors remained focused on dip buying their favorite stocks. Today was definitely a trader’s market.

Not much to add tonight to my market direction outlook for tomorrow except that the Market Timing Technicals are a bit weaker and now in overbought territory.

Market Direction For Thursday – Overbought

Market direction for Thursday based on the market timing indicators shows a general overbought condition, but not to extremes.

momentum is positive and pretty well unchanged from yesterday.

MACD is still positive and continued to climb today despite the weakness in market direction today.

The Ultimate Oscillator moved higher and into overbought territory.

The Slow Stochastic is still somewhat bullish but it is beginning to reflect a neutral stance

Finally the Fast Stochastic is still bullish but a bit more selling tomorrow could push it into a bearish outlook.

Market Direction for Aug 8 2012

Market Direction for August 8 2012 shows the market is overbought

Market Direction Outlook Heading Into The End of the Week

Stocks are overbought and the Slow Stochastic is signaling that the climb in market direction could stall here for a couple of days. At %K 92.86 the Slow Stochastic is also overbought. The Fast Stochastic at %K 93.98 is also overbought. There is still room to the upside but not much more before the overbought indicators will be reaching extreme levels.

With the market overbought, any push higher has to be suspect. While I do not see any big decline yet from the above market timing technical indicators, the market direction is facing a lot of headwinds here and may need a few days of back-filling before it has enough strength to try to push higher.

Put Selling on the dips makes a lot of sense on days like Wednesday. For myself I would not be interested in selling short-term covered calls at this level as it would be smarter to wait for a clearer signal whether or not the market will continue this advance or stall out here. If the market direction rise stalls, then short-term covered calls would be a decent trade to consider, but right now there could still be more upside ahead. With stocks under pressure and the market direction churning sideways, sometimes markets surprise to the upside. I find it always best to wait for a clearer market direction picture before risking exercise through selling covered calls too early.